E More Returns

The long-line of unwanted gifts returned after the holidays has already happened in the US and Europe, but for China its another story. The return of China to markets has been greeted with rising hopes for the US/China talks in Beijing, more stimulus from the government and more global growth spillovers. The push ahead for risk met a few headline glitches with the UK being the focus for less rather than more as its GDP fell in December and its monthly data highlighted the concerns that led the BOE to flip on its forecasts and rate path.  More returns in equities don’t mean more pain in bonds as this is a week for geopolitical uncertainty ending with the risk of a US government shutdown Friday, starting today with these headlines:

The UK was clearly the news focus and least interesting trade in FX again. The EUR/USD dip below 1.13 despite US politics underscores the problems with rates driving FX. The GBP/USD relationship is still worth watching given the failure of the recent breakout. On the day, the FX markets were all about safe-haven reversals with Japan on holiday and a test of the 110.20-40 resistance underway. For CHF it was a mini-flash crash as 1.0070 led to a stopfest test of 1.01 which quickly reversed. The world of FX and thin markets may be telling us something larger and more important about risk-on and off for today watching .9925 for troubled returns. 

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